Nov. 2 (Bloomberg) -- Ford Motor Co., after posting a surprise third-quarter net profit, said it is raising as much as $3.3 billion, while paying down and pushing back the maturity of a $10.7 billion line of credit to strengthen its balance sheet.

Ford said it is seeking to pay down 25 percent of the revolver and move back by two years, to 2013, the maturity of the remaining $8 billion liability. Ford also said it is offering as much as $2.3 billion in senior notes that can be converted to common stock or cash in 2016.

Ford also in December will offer as much as $1 billion in common shares through broker-dealers.

“We expect the moves will enhance Ford’s automotive liquidity and over time reduce the company’s debt burden, providing an additional cushion given the still uncertain state of the economy,” Ford Chief Executive Officer Alan Mulally said in a statement. Earlier in the day, it announced a surprise $997 million third-quarter profit.

Ford, the only major U.S. automaker to avoid bankruptcy, is seeking to reduce a debt load larger than those of General Motors Co. and Chrysler Group LLC, which shed liabilities in reorganization. GM’s liabilities will be $22.3 billion in 2011, while Ford’s will total $38.1 billion, Barclays Capital auto analyst Brian Johnson said in an Oct. 20 research note.

Taking Advantage

Ford is taking advantage of shares that have more than tripled this year. Ford rose 58 cents, or 8.3 percent, to $7.58 at 4:15 p.m. in New York Stock Exchange composite trading.

Lenders representing $6 billion of Ford’s revolving credit line have already agreed to reduce and extend the maturity from Dec. 15, 2011, to Nov. 30, 2013, Ford Chief Financial Officer Lewis Booth said in an e-mail to employees.

In exchange, lenders may receive a reduction of as much as 25 percent in their revolving commitments, a 1 percentage point increase in interest rate margins and an increase in fees and payment of an up-front fee. Revolving lenders have until Nov. 18 to submit their response.

“The early response from our lenders to this approach has been very positive,” Ford Chief Financial Officer Lewis Booth said in an e-mail to employees today. “Improving our balance sheet is not just reducing debt and raising capital. The most important thing we all can do is help the company return to profitability and generate positive cash flow.”

Cash Position

Ford, which lost $30 billion from 2006 through 2008, said today it had positive cash flow of $1.3 billion in the third quarter. That was Ford’s first positive cash-flow quarter since 2007. Its $1.1 billion pre-tax profit in the third quarter was the first since the first three months of 2008, Ford said.

Ford said it finished the third quarter with $23.8 billion in automotive cash, up from $21 billion at the end of the second quarter.

The revolving credit line had an interest rate 2.25 percentage points more than the London interbank offered rate, according to the company’s quarterly filing for the period ended June 30 with the U.S. Securities and Exchange Commission.

Ford borrowed $10.1 billion under the revolver on Feb. 3 “due to concerns about the instability in the capital markets and the uncertain state of the global economy,” according to its second-quarter filing with the SEC.

Under the credit agreement, Ford must maintain at least $4 billion in cash, marketable securities or borrowing ability under its revolving credit line. The company is also barred from paying dividends on its common and class B stock. The terms also limit the amount of debt Ford can have.

More Notes

The underwriters of the $2 billion in senior convertible notes have the option to purchase an additional $300 million in principal of senior convertible notes, Ford said.

Ford’s $579 million of 4.25 percent convertible bonds due in 2036 were down 1.15 cents to 100.45 cents on the dollar as of 5:04 p.m. in New York, according to Trace. The securities, which were up 1.42 cents before the filings, dropped 2.56 cents on the news, Trace data show.

The cost to protect against a Ford default fell 1.25 percentage points to a seven-week low after the company said it proposed extending the credit line’s maturity. Credit-default swaps on the automaker declined to 10.75 percent upfront, according to broker Phoenix Partners Group. That means it would cost $1.08 million initially and $500,000 annually to protect $10 million of Ford debt for five years.

The contracts are down 2.25 percentage points for the day, Phoenix data show. The cost typically declines as investor confidence in the company’s creditworthiness improves. The swaps are trading at the lowest level since Sept. 16, according to CMA DataVision.

Credit-default swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.

To contact the reporter on this story: Keith Naughton in Southfield, Michigan at Knaughton3@bloomberg.net

Last Updated: November 2, 2009 18:52 EST